Market still faces resistance

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Daily FBM KLCI chart as at July 8, 2016 using Next VIEW Advisor Professional

Daily FBM KLCI chart as at July 8, 2016 using Next VIEW Advisor Professional

The market closed marginally lower in a short trading week last week. Market sentiment was weak as global markets performances were mixed and prices of commodities, especially crude oil and palm oil, fell. The benchmark FBM KLCI declined only 0.1 per cent in a week to 1,644.54 points.

The average daily trading volume last week was only 1.0 billion shares as compared to 1.4 billion shares two weeks ago. The average daily trading volume declined from RM1.7 billion to RM1.2 billion. The low volume shows that most investors were still on holiday.

Foreign institutions were net buyers last week as stronger ringgit on Monday boosted their appetite. Net buy from foreign institutions was RM94 million while net sell from local retail was RM101 million. Net buy from local institutions was RM7 million. The ringgit was firm against the US dollar from the previous week at  RM4 per dollar.

In the FBM KLCI, decliners out-paced gainers three to two. The top gainers for the week were British American Tobacco (M) Bhd (3.7 per cent in a week to RM54.42), Hong Leong Financial Group Bhd (two per cent to RM15.30) CIMB Group Holdings Bhd (1.9 per cent to RM4.39).

The top decliners were UMW Holdings Bhd (-5.3 per cent to RM5.38), Sapurakencana Petroleum Bhd (2.8 per cent to RM1.39) and Sime Darby Bhd (2.5 per cent to RM7.31).

Markets performances in Asia were mixed. China’s Shanghai Stock Exchange Composite increased 1.9 per cent in a week to 2,989.25 points last Friday.

Singapore’s Straits Times rose marginally higher at 2,847.04 points.  Japan’s Nikkei 225 index declined 3.9 per cent in a week to 15,106.98 points and Hong Kong’s Hang Seng Index fell 1.1 per cent to 20,564.17 points

US and Europe continued its bullish trend after a correction two weeks ago. The US Dow Jones Industrial Average increased 1.1 per cent in a week to its highest in 13 months at 18,146.74 points on Friday.

London’s FTSE100 increased 0.2 per cent to 6,590.64 points, the highest in 11 months. However, Germany’s DAX Index declined 1.5 per cent to 9,629.66 points.

US dollar strengthened against major currencies. The US dollar index futures rose from 95.7 points to 96.3 points last Friday. Gold rose to its 28-month high. COMEX Gold increased 1.7 per cent in week to US$1,367.40 an ounce.

Crude oil (Brent) declined seven per cent in a week to US$46.76 per barrel. Crude palm oil in Bursa Malaysia fell 5.1 per cent in a week to RM2,238 per metric tonne.

The weak market performance last week shows that there is resistance.

Immediate resistance is at around 1,665 points. The weekly chart shows uncertainty. Nevertheless, the FBM KLCI is still bullish above the short term 30-day moving average.

However, the index is still below the Ichimoku Cloud and the long term 200-day moving average. This indicates that the long term trend is still bearish.

The top band of the Ichimoku Cloud is at 1,670 points and the long term 200-day moving average is at 1,665 points.

Hence, the immediate resistance level is between 1,665 and 1,670 points. The FBM KLCI needs to overcome the resistance to build market confidence and the trend to turn strongly bullish.

Despite the resistance, the market is still being supported and like last week, we continue to expect market to bargain hunt after the holidays in this second half of the year.  A breakout above 1,670 points could bring the index to test the highest levels this year at 1,720 points.  However, if the index fails to break above this level, then we are going to expect further correction.

The above commentary is solely used for educational purposes and is the contributor’s point of view using technical analysis. The commentary should not be construed as an investment advice or any form of recommendation. Should you need investment advice, please consult a licensed investment advisor.